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CMA Final · Strategic Performance Management and Business Valuation · Economic Efficiency of the Firm - Performance Analysis

In performance analysis of a firm, technical efficiency is best described as:

Technical efficiency means obtaining the maximum output from a given set of inputs, or using the minimum inputs for a given output. It is a physical input-output measure, unlike allocative efficiency, which depends on input prices and the cost-minimising mix.

  1. AProducing a given output with the minimum possible inputs, or the maximum output from given inputsCorrect
  2. BChoosing the input mix that gives the lowest cost at given input prices
  3. CProducing the output mix that society values most
  4. DEarning a return above the cost of capital

Explanation

Technical efficiency concerns the physical relationship between inputs and outputs, with no wastage of resources. Choosing the cheapest input mix at given prices is allocative (price) efficiency, so option 2 describes a different concept.

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